Reshaping and Reforming National Innovation System toward Knowledge based economy, some particular lessons from Irans

experience

Reza Salami University of Allameh, Tehran, Iran

Correspondence: Reza Salami, Ph.D. School of Management & Accounting, University of Allameh, No:78, Haft Peykar alley, Tavanir Avenue, Tehran, PC 14155, Iran. Tel:0098-912-1488689 (Cell phone) Fax:0098-21-88886002 E-mail:reza_salami@yahoo.com

Reshaping and Reforming National Innovation System toward Knowledge based economy, some particular lessons from Irans experience
Abstract
The main objective of this article is to study Irans experience of reforming and reshaping its National Innovation System (NIS) in order to move toward Knowledge-based Economy. Firstly, some of the main relevant literature of the role of NIS in technological development has been surveyed. The performance of the NIS of the country has been investigated and discussed. Finally, some suggestions and policy implications regarding the improvement and promotion of NIS in Iran and the lessons that can be drawn for other developing countries for moving toward knowledge-based economy will be presented. It can be generally concluded that in order to reforming and reshaping the developing countries NIS, there is necessary to put a greater emphasis on developing a strong interaction between three main actors of the countrys NIS. This can be illustrated and shown by developing a conceptual model (for NIS) that is also could be applied for other LDCs.

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KEY WORDS: National Innovation System (NIS), Knowledge-based economy, Less Developed Countries (LDCs), Iran.

Introduction Developing countries have designed their long-term industrial and technological programs in line with the rapid technological changes that have been taking place in the developed countries. Over the last three decades, developing countries, especially those with oil-based economies, have relied on the import of mechanical engineering and processing technologies to provide industrial products to the world market. But little has been achieved by way of technological development, with the result that the technology gap between the developed and less industrialized developing countries has persisted, much to the disadvantage of the latter. Moreover, the flow of innovation and new technologies has intensified the process of technical change in industrialized countries. At this rate of technological progress, it is unlikely that developing countries could bridge the technological gap with the industrialized countries unless sufficient investment in their S&T infrastructure. Among the developing countries themselves, the experience of technology management is varied, so that some are technologically more developed than the others. The phrase knowledge-based economy describes the new economic environment in which the generation and management of knowledge play a predominant part in wealth

creation, as compared with the traditional factors of production, namely land, labor and capital. Aptly, the 21st century is often labeled as the century of knowledge, as the ability to create, access and use knowledge has become, even more than before, a fundamental determinant of global competitiveness of enterprises and economies (WIPO, 2003). For this purpose, the concept of National Innovation System (NIS) has been introduced in order to meet the present complexities in the process of knowledge creation and dissemination. Since the 1980s the concept of the national innovation system (NIS) has been gaining popularity as a core conceptual framework for analyzing technological change, which is considered to be an indispensable foundation of long-term economic development of a nation. The term NIS has been firstly introduced by Christopher Freeman (1987) as a historically grown subsystem of the national economy in which various organizations and institutions interact with and influence one another in the carrying out of innovative activity. Freeman used this term in order to describe the performance of the economically most successful country of the post-war period namely Japan. The NIS concept is a means to study the national-specific features of the structure and the success of innovative activities at national level which in turn are considered as being interactive and institutionally embedded (Balzat, M. 2006). NIS is the interactive system of existing institutions, private and public firms (either large or small), universities and government agencies, aiming at the production of Science and Technology within national borders. Interaction among these units may be technical, commercial, legal, social and financial as much as the goal of the interaction may be development, protection, financing or regulation of new Science and Technology (Niosi et al, 1996). Governments face the task of strengthening innovation systems in order to take greater advantage of globalization and the move to a knowledge-based economy (OECD 1999). Nowadays, the concept of National Innovation System (NIS) acts as a policy making tool in order to understand the roots and main reasons behind the existing gap between Developed and developing countries. The main idea of the concept of innovation systems is that the overall innovation performance of an economy depends not only on how specific organizations like firms and research institutes perform, but also on how they interact with each other and with the government sector in knowledge production and distribution. Therefore, it can be said that the development of technological innovation in a country is the result of interrelating and interacting of the set of actors and players within NIS. These (actors and players) are mainly including public and private enterprises, universities and public research institutions.

The NIS perspective indicates a much broader and more interdisciplinary approach to economic growth theory than standard economics. It also differs in being more explicit in terms of the institutional assumptions made and especially in avoiding any assumption about factors being independent. This reflects the systems perspective and the emphasis on virtuous and vicious circles or match and mismatch between elements and sub-systems ( Lundvall, 1998). The NIS provides a foundation of the formulation of conjectures, both conventional (economic and R&D indicator) and unconventional (learning, institutional set-up, intangible assets, intellectual property and knowledge) factors. This was a valuable contribution of appreciative theory and empirical research to the understanding of economic growth, as well as to policymaking, because the qualitative changes, which were investigated, could not emerge from purely quantitative analysis or models. Since the late 1990s, several attempts have been made to evaluate and to compare innovation systems in terms of their performance, which in turn is defined and measured in different ways. In some cases, comparative studies on the system-level have been utilized as a preliminary step to generate rankings of national innovation systems (Porter and Stern, 2002). When NIS between countries is compared, the historical background and natural environment should be considered. In other words, NIS is different from one country to another because the manufacturing system, R&D investment, technology development and diffusion all differ. (Fagerberg 2003; Balzat and Hanusch 2004, Lundvall,2007). In developing Countries, many of the innovations may be minor and adaptive, and may be directed towards the scaling down of products, processes, and plants, as well as the substitution of some raw materials to others. They mostly take place in private firms and some government corporations and labs. The concept and theories that are the basis of a national system of innovation can probably be applied with minor modifications to less developed market economies. Nelson tends to take a country approach to studying the national system of innovation in the fifteen developed and developing countries. Nelson and Rosenberg justify their approach by noting that the orientation of this project . . . [is to] try to understand, rather than to theorize first and then attempt to prove or calibrate the theory. (Nelson, R. 1988). IRANS NIS Iran is a resource-rich country that is located in a strategic area of 1.65 million square kilometres, with the Caspian sea, Turkmenistan, Armenia and Azerbaijan in the north, Turkey and Iraq to the west, the Persian Gulf and the Gulf of Oman in the south and Pakistan and Afghanistan to the East. It is the seventeenth largest country in the world. It has a population of about 70 million people.
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It is one of the major oil exporting countries in the world and also has substantial gas and mineral reserves including coal, chromium, copper, iron ore, lead, manganese, zinc, and sulphur. Moreover, Iran has a relatively good transportation network, including about 4,850 km of railroads, 140,200 km of highways, more than 14 main ports, 132 ships, and 261 airports. In Iran, the establishment as well as reforming and reshaping its national innovation system has been among the most important policy framework tools and the focal point for the policy makers in recent years. The third and fourth Five Year Development Plan of the country emphasized the promotion of invention and innovation activities in the country in order to move toward knowledge based society. The technology policy of the country is contained in these successive five year plans. The following table shows the degree to which policymakers concerned toward moving toward generating knowledge based society. As discussed earlier, an innovation system is a network of economic agents whose activities and interactions bring new products, new processes and new forms of organization into practical and economic use. The key agents in this network include enterprises, universities and research institutes, the Government and other support institutions such as industry associations, consumer groups, business support organizations and financial institutions. Continuous interaction between these actors and the learning opportunities created as a result are critical for innovation.
2nd Five-Year plan (19951999) Creating quality control systems to improve the quality of products through the cooperation between research centers and higher education centers Assisting the creation of endogenous R&D units in large and medium factories as well as R&D centers for specific industries Modifying and reforming national Providing financial support for doing all kinds of research (Basic, Applied, Developmental) Stimulation of a creative and entrepreneurial activities by creating new industrial and S&T parks innovation system in a proper and cohesive manner to move toward creation of knowledge-based nation Prioritizing research activities based on overall macro technology policy of the country 3rd Five-Year plan (2000-2004) Promoting the dynamic linkages between scientific institutions, industrial organizations, state owned enterprises and universities and higher education centers More reliance on market forces for encouraging innovative efforts in manufacturing enterprises 4th Five-Year plan (2005-2009) Acceleration of privatization process of state-owned companies through promotion of Stock Market

Table 1. Technology policy content of Iran' Development Plans (1995-2009) s

Irans present industrial and technological structure has largely been influenced by factors intertwined with the characteristics of the oil sector. Although Iran is richly endowed with natural and human resources, this advantage has not yet seen the country making a transition from oil-driven to innovation-driven growth. Improvement in the oil income in the recent years has assisted the policy makers to mitigate the technology constraint on growth by making foreign technologies increasingly accessible. Although, Iran has been fortunate for its oil resources; but the oil fortune has been changing taking a downturn for the most part in recent years, so that it cannot be expected to continue to provide a sound basis for sustainable growth. Sustainable growth has to be achieved through the provision of relevant infrastructure and the adoption of policy capable of producing innovation and set in train the development of innovation-based competition. The application of innovation to industrial activities would certainly improve Irans industrial competitiveness. But innovation possibilities cannot be taken as given. Innovation is a capability that has to be developed. It can be said that despite the move towards a knowledge-based economy, innovation has not yet become a strategic goal of policymaking in Iran. Over the years, R&D investment in the industrial sector has received little attention mainly due to the assembly nature of the imported technologies. There was hardly any demand for R&D because the windfall income received from oil exports made it possible for existing industries to attain ready made-technologies and spare parts from abroad. Pressures on oil on oil exports following the downswings in oil prices during the 1980s, and 1990s triggered major initial progress in educational capacity building, and investment in R&D. As part of the policy concerning local technological capacity building, considerable attention was focused on secondary education, and tertiary education with the aim to strengthen the S&T capability of the country. Iran has learned the benefits of investment in education over the years. Indeed, it has come a long way from the turn of century to give herself education strong status in planning and policy aimed at promoting capacity building, industrialization and economic development. In 1956, for example, the literacy rate for the population over seven years of age was 15.4 per cent. It rose to 47.1 per cent in 1976, 62 per cent in 1985 and around 75 per cent in 1992 and 80 percent in 1996. Educational capacity building over the last decades has been influenced by the performance of the oil sector. There is an un-precedented capacity building in Higher education in response to ever-increasing social demand. The number of university students has become seven fold since two decades ago. There are currently about 53 public universities as well as 23 private universities and 165 university
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research centers. There are also 29 national research centers which are mostly affiliated to the Ministry of Science, Research and Technology and 99 research centers affiliated to the Ministry of Health & Medical Education and more than 69 research centers attached to the other ministries. There are already 113 private research centers and approximately 925 R&D units performing in industrial sector. According to the statistics given by UNESCO (2006), there are 484 researchers in R&D per million of its population in the year 2003 in the country which ranked Iran third in the region above Turkey. The numbers of scientific articles published in international journals have also been increased sharply. Wide range of activities in terms of technology selection, appraisal, screening, transfer, adoption, assimilation, diffusion and plant development has been undertaken by local expertise. This gives good evidence to accumulation of technological capabilities and major improvements in learning effects of imported technologies in Iran. There are evidences of improvements in the quality standards of exportable industrial products and transfer of design and engineering skills to developing countries. Promotion of R&D and Design & Engineering activities in both public and private sectors thus has become a characteristic framework of policy. Figure 2. National system of innovation in Iran (Triple Helix perspective)

Government

External knowledge flows

Hightech SMEs

Foreign technology flows

Research institutes/ universities

Large enterprises

Business support organizations Business associations Consumer groups

Missing or weak, with no role in the innovation system Few, if any, with weak linkages

Supplier industry / SMEs / TNCs

Source: Adapted from STIP, 2006

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Figure 3 represents graphically the main actors in the Iranian innovation system. It shows that some elements and interactions in the innovation system are fairly well developed, whereas others are weak, while some important ones are missing. At its core are the strong interactions between government ministries on the one hand and research institutes/universities and large enterprises on the other. Figure 3: The main actors in the Iranian innovation system.

Source: Adapted from Mani, Sunil, 2005 The major actors in the Iranian NIS are government ministries, research institutes, universities and majority of large enterprises. Innovation activity in Iran is supply-driven. In other words,

the innovation activities in Iran are driven not by demand but by government plans. The following figure illustrates the main actors in the Iranian innovation system. As can be seen, the government has played a critical role in the countrys innovation system. Government controls over 80% of the economy. However, there is a relatively weak linkage existed between Irans R&D institutes, universities, and universities in one hand and with the government in another. Summary and Conclusions Having analyzed the current national innovation system of the country, there seems to be a main consensus among the policy makers as well as scholars that Irans NIS needs to be reshaped, reformed and restructured. There is also a necessity to create an organization to monitor and supervise all other institutions that are involved in innovative activities in the country. This is mostly because of preventing and avoiding some parallel activities of several institutions and actors in the countrys innovation system. It also needs to improve the performance of countrys national innovation system. There are some strengths considering NIS of the country. The strong points of the innovation system of the country include the existing of the large and potential skilled human resources as well as the establishment a relatively well-developed technology infrastructure, and the abundant physical resources. The weak points of the Irans national innovation system are lack of capability for producing creative, world-level output; poor diffusion and industrialization system of innovation; inactive cooperative network among industry, academia and research institutes. In other words, the cooperation between industry, academia and research institutes is very weak. Hence, it is obvious that a new NIS has to be established that will help in transition to innovation-led growth model. It can be generally concluded that it should place a greater emphasis on developing a strong interaction between three main actors of the countrys NIS. His can be shown in the following diagram. This is similar to triple helix model to manage and evaluate the nature of relationship or network, involving activities, resources and actors. The activity link, that involves technical, administrative, commercial and other activities, can affect the outcome and the performance of the network. The quality of relationship is also affected by the availability and accessibility of resources, such as technology, material, knowledge, equipment, human resources and finance. The third level of relationship involves interactions between the actors that generate trust and synergy within the relationship as is shown in the following diagram.

Government

Activities Resources Actors

Learning And Innovation

Activities Resources Actors

University

Activities Resources Actors

Industry

Figure 4. Model for effective links and integration between the three most important actors of NIS that is university, industry and the government. References Balzat, Markus (2006). An Economic Analysis of Innovation, Extending the Concept of National Innovation System, New Horizons in Institutional and Evolutionary Economics; Edward Elgar Pub. 2006. Balzat, Markus, and Horst Hanusch. Recent Trends in the Research on National Innovation Systems. Journal of Evolutionary Economics 14 (2004): 197210. Fagerberg, Jan. Schumpeter and the Revival of Evolutionary Economics: An Appraisal of the Literature. Journal of Evolutionary Economics 13 (2003): 125159.

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Freeman, Christopher. (1987) Technology Policy and Economic Performance: Lessons from Japan (London: Pinter)]. Lundvall, B.A. (1998). Why study national systems and national styles of innovation? Technology Analysis & Strategic Management, 10(4): 407-422. Lundvall, Bengt-Ake. February 2007 National Innovation System-Analytical Concept and Development Tool, Industry and Innovation, Vol. 14, No.1, 95-119. Mani, Sunil. A National System of Innovation in the Making: An Analysis of the role of Government with Respect to Promoting Domestic Innovations in the Manufacturing Sector of Iran. Discussion papers No: 12,UNU-INTECH. Nelson ,Richard, R. High Technology Policy, A Five Nations Comparison (Washington D.C.: The American Enterprise Institute, 1984. Nelson, Richard R.Institutions Supporting Technical Change in the United States, in G. Dosi et al.(eds.), Technical Change and Economic Theory (London: Pin&, 1988). Niosi , Jorge, Bellon, B. (1996) The Global Interdependence of National Innovation Systems, Technology in Society, Vol. 16, No.2:173-97. OECD, Managing National Innovation Systems, 1999. Porter ME, Stern S (2002) National innovative capacity. In: World Economic Forum. The Global Competitiveness Report 20012002. Oxford University Press, New York. Wells, Jr. L. T., Third World Multinationals (Cambridge, MA: MIT Press, 1983). WIPO (2003), Intellectual Property in the Modern Knowledge-Based Economy; Developing an IP Strategy for Economic Growth, WIPO Publications.

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